October 3, 2013; Alaska Dispatch

 

Two subsidiaries of cruise ship operator Carnival Corp. have given $1 million to the University of Alaska. The important element of this story is that a corporate donation is not always a pure donation because of the mix of tax deductions and tax credits that might be involved. The gift got lots of attention, including the participation of Governor Sean Parnell at a ceremonial acceptance of the donation. He might as well have joined Carnival in accepting the University’s thanks.

Part of the state’s role in Carnival’s donation is the state’s Educational Tax Credit: Corporations that support education get a tax credit. For the first $100,000 worth of donation, corporations get a 50 percent tax credit. For the next $200,000 of educational donations, they get a full 100 percent tax credit. As the Dispatch notes, the cost of a $100,000 donation for a corporation is the same as the cost of a $300,000 donation; that is, only $50,000.

If the corporations structured the $1 million gift to be distributed over multiple years— say, $300,000 a year for the first three years—the cost to the corporation would be only $50,000 a year, with the State of Alaska paying for the other $250,000 of the corporation’s “gift.” A multi-year gift would cost as follows:

Year 1

First $100,000 –cost $50,000

Next $200,000 –cost zero

Year 2

First $100,000 –cost $50,000

Next $200,000 –cost zero

Year 3

First $100,000 –cost $50,000

Next $200,000 –cost zero

Year 4

$100,000 donation –cost $50,000

 

If the corporations were to make the donation all in one year, for the portion of the sum between $300,000 and $1 million, they would get a 50 percent tax credit. The total cost would be as follows:

  • First $100,000 – cost $50,000
  • Next $200,000 – cost $0
  • Next $700,000 – cost $350,000

Add in the federal tax deduction, and the corporate donor saves even more money on the donation.

The Dispatch offers the following interpretation of the Alaska program: “One way to look at this program is that the Legislature has delegated to private companies the ability to appropriate a portion of their taxes in the interests of education and good publicity.” In other words, the corporate taxpayer is determining how its taxes will be deployed—and in the process receives the public gratitude of the recipient of the tax-subsidized corporate largesse.

Is this corporate philanthropy, or something significantly different?—Rick Cohen